Later today there is a good chance that the Reserve Bank of Australia will cut interest rates by a full half percent. In anticipation, the four big banks in this country have been crying poor - and claiming that they can not afford to pass on this interest drop to those with home mortgages.
This might be a good time to examine precisely what banks do !
A bank is an institution that borrows money from one party, adds a profit margin for it's services - and then lends that same money to someone else !
Because we have just gone through a crazy decade when money was lent to people who shouldn't have been given a loan - and as a result house prices soared to lunatic levels - everyone with money to lend is a bit leery about lending - and is looking for a higher interest rate because of the risk factor.
As a result, the banks are afraid that there will be a money shortage to service new loans to both home mortgage holders - and business and industry planning extensions.
They want to hold back on interest relief to existing mortgage borrowers to help maintain that money supply - and of course - maintain their profit levels.
There is just one little fly in the ointment ! The moment that the Reserve bank drops interest rates - watch the banks drop the interest they pay you on your money deposited with them in interest bearing securities.
The banks want it both ways. They want to hang onto their high lender's interest rates - which support their profit levels - and at the same time decrease the interest they offer to those who invest their life savings and superannuation money with them.
It seems that the Federal Treasurer is going along with this scenario - on the basis that unless there is a stable loan market those who want to buy a house will have difficulty finding a loan source - and if industry can not expand we will face a recession because of the unavailability of funds.
What the average person has every right to demand is that his or her savings - deposited with a bank - be treated in precisely the same way as money the banks borrow from other banks or overseas sources.
If money is more expensive to borrow, then the Mums and Dads should not be short changed on what they get for their savings - and it is quite unacceptable if those with a mortgage do not get relief - but at the same time the kid's savings invested with a bank see an interest fall - because of the Reserve bank's rate cut.
That would be the worst case of - double dipping !
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